Online Rally May Sidestep Newspapers

STEPHANIE CLIFFORD

Monday

Oct 26, 2009 at 1:31 PM

For many marketers, newspaper Web sites are valuable for special occasions but cheaper generic placement is better for everyday use.

It was a good day for newspaper Web sites when Mercedes-Benz USA introduced its updated E-Class cars this summer. Mercedes bought out the ad space on the home pages of The Washington Post, The Wall Street Journal and The New York Times, and had those sites create special 3-D ads for them, at an estimated cost of $100,000 a site.

The days after were not as good. While Mercedes was happy with the newspaper sites’ performance, it shifted money to cheaper, more tightly aimed ads bought through networks, which bundle ad space from many Web sites.

When Mercedes advertises its more basic models next year, it will largely avoid newspaper Web sites and rely on networks. That lets Mercedes “be very targeted and efficient with our dollars,” said Beth Lange, digital media specialist for Mercedes-Benz USA.

But that also explains why newspaper sites are not holding on to ad dollars, even while overall Internet advertising is creeping back. Newspaper sites are the patent-leather stilettos of the online world: they get used for special occasions, but other shoes get much more daily wear. The beneficiaries of this behavior are networks and exchanges like Advertising.com from AOL and DoubleClick Ad Exchange from Google, which dominate the buying and selling of extra space.

At nonnewspaper sites like Yahoo and Google, revenue from display advertising — the image-based ads on Web pages — seems to be returning. Yahoo’s display revenue on its Web sites increased 2 percent in the third quarter, though it was down from a year earlier. Display revenue increased at Google from a year earlier.

Over all, the Internet is the only advertising medium expected to grow this year in the United States, rising 9.2 percent, to $54.1 billion, according to figures released this month by ZenithOptimedia, a media service firm.

Newspaper sites cannot seem to catch that wave. The New York Times Company reported a decline in ad revenue at its newspaper Web sites of 18.5 percent this quarter compared with the third quarter last year. Advertising revenue at Gannett’s newspaper sites also declined. The McClatchy Company was an exception, with online advertising revenue rising 3.1 percent from a year ago, though the rate of growth slowed. (Other major newspaper companies have not yet reported their revenues for the most recent quarter.)

That is a sobering trend for newspaper executives, who once hoped that online revenue would make up for plummeting print revenue.

At The Times, the dip in online advertising revenue was largely a result of disappearing classified ads, said Denise Warren, senior vice president for advertising and chief advertising officer for The New York Times Media Group. She declined to give specific figures about how third-quarter online display advertising had fared, but said, “the performance is in the positive territory.” An internal analysis suggests that the site is outperforming the general display market, she added.

And while much of the Times’ online ad revenue came from big campaigns, “we still have a very sizable portion of our business that is run-of-site advertising,” she said (ads that appear anywhere on the site, rather than in guaranteed high-traffic spots).

At McClatchy, while classified advertising also declined, revenue from online display ads rose. Retail ads rose 58 percent, to $17.7 million, and national ads from marketers like Staples and Wal-Mart rose 36 percent, to $5.4 million. Christian A. Hendricks, vice president of interactive media at McClatchy, attributed the rise to the company’s focus on online-only ads and its selling of local ads, rather than national brand campaigns.

“There’s so much inventory,” or places to put ads, “at the national level, and so fewer advertisers compared to the local marketplace,” Mr. Hendricks said.

Chris Saridakis, senior vice president and chief digital officer of Gannett, which owns sites like USAToday.com, said classified advertising was weak but display advertising rose in the quarter.

One reason newspaper sites do not appear to be bouncing back as much as the overall Internet is price: after advertisers introduce their splashy campaigns on news sites, they can follow up with cheaper ads all over the Web.

“You get the big audience reach on your national brands, and you guarantee that by buying USA Today or The Times or other properties. And a secondary buy, you buy inexpensive, low-c.p.m. ad networks,” said Mr. Saridakis, using the industry shorthand for cost per thousand times an ad is shown. A display ad that might cost $10 to $20 per thousand at a site like USAToday.com could cost around half that amount when it is bought across an ad network of similar sites.

“They’re basically trying to buy the same audience at a third of the price,” he said. Given that high-end sites cannot sell all their ad space right now and so hand off the extra to networks, “networks are a fairly good way of finding that,” he said.

However, he said, when marketing spending increases and extra space becomes scarce, he thinks ad-network prices will rise. At that point, he said, he expects advertisers to return to the high-end sites, since the price difference will not be as pronounced.

But price is not the only draw of networks — they also focus on who sees the ad. Mercedes, for example, plans to route its ads for its basic cars next year to people with household income of more than $75,000 or those whose leases are about to expire — a much more specific audience than, say, people visiting The Washington Post’s auto site.

And as long as an ad looks good, it does not matter whether it runs on a fancy site or a lower-end site, some research indicates.

“By far the most important thing for driving success is the quality of the ad,” followed by aiming at an audience, said Ken Mallon, senior vice president for custom solutions for the research firm Dynamic Logic, part of the Millward Brown division of WPP. “Generally speaking, we don’t see a large range of difference in terms of the Web site.”

Ad buyers are not convinced of the power of high-end sites, either. “They’ll tend to go for something that’s less expensive, because there’s not a lot of proof in the marketplace at this point that what one would call premium inventory — and you could put some newspaper advertising into that category — actually performs better,” said Adam Kasper, director of digital media for Havas Digital’s Media Contacts, which handles advertising for clients like Volvo. Newspaper sites work well “when you’re talking about a product launch, big announcements,” he said, “but the costs are higher for those bigger, splashier units.”

Newspaper publishers, scrambling to keep ad dollars, are creating newer, splashier kinds of ads, like ones that expand, then contract, which advertisers say is not necessarily the way to go. This summer, the industry group Online Publishers Association, which most large newspaper sites belong to, introduced three special types of ads that its members could begin selling: one moved down as the visitor scrolled down, for instance, and another spread across the page for several seconds. It was meant to distinguish the member sites from the networks, said Pam Horan, president of the association.

So far, though, only a single site — NYTimes.com — is running all three of those special types of ads. Ms. Warren said she was “very pleased” with revenue from those ads, though she declined to disclose specific figures.

But the distinction quickly disappeared: ad networks immediately copied the special ads. And advertisers were not necessarily thrilled about the more-complicated landscape. The industry had been trying to settle on minimal standard ad sizes, said Kathryn Koegel of Primary Impact, a digital-media consultancy. “What the O.P.A. ended up doing unleashed a whole bunch of people creating new ad sizes,” she said.

Mr. Kasper suggested that no matter what publishers did, they were in some trouble as ad networks and exchanges continued to sell cut-rate space.

“A lot of advertisers are moving toward buying in an auction-style manner, on an exchange or on an ad network, so it’s the market that’s driving this,” he said. “There are things publishers can do to stem the tide, but I don’t think it’s completely within their control.”

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